Deck 12: Taxation of Partnerships, Joint Ventures, Trusts and Superannuation

Question 1

Max Smart and Cheryl Smith are in partnership sharing profits or losses equally. The partnership carries on a trading business and has investments in shares.The net income from the business is $80,000 and the fully franked dividends total $21,000.
Calculate the assessable income of each partner.

A) $50,500
B) $40,000
C) $50,500.
D) $55,000.

Answer 1

$55,000.

Question 2

Which of the following is deductible to the partnership against the partnership net income?

A) Interest paid by the partnership on loans made by a partner where that borrowed money was used to provide working capital to the partnership
B) Interest on partners' capital contributions
C) Drawings made by the partners
D) Partners' salaries paid to the various partners

Answer 2

Interest paid by the partnership on loans made by a partner where that borrowed money was used to provide working capital to the partnership

Question 3

What is the effect on the partnerships income tax liabilities when it makes a loss?

A) The loss is carried forward in the partnership accounts until it derives a taxable profit
B) The loss is transferred to the partners who then carry it forward until they receive a distribution of partnership profits.
C) The partnership loss is transferred to the partners who can deduct it in their own tax return
D) The partnership must sell its assets to enable it to pay its income tax obligations

Answer 3

The partnership loss is transferred to the partners who can deduct it in their own tax return

Question 4

Georgina Polo and her husband have formed a partnership to run the family business. The partnership will only be effective for income tax purposes if:

A) The ATO considers that the partners salaries are reasonable
B) The partnership agreement is in writing and witnessed by a solicitor
C) The partners have contributed an equal amount of funds into the partnership
D) A partnership requires two or more people to enter into a contract to carry on a business in common with a view to profit.

Question 5

Anne Rose and Ellen Fenny carry on a partnership together. Gross receipts for the 2019-20 tax year are $80,000 Expenses included: purchases of trading stock $18,000, wages paid to employees $10,000, and the lease on the car used in the business. The car travelled 4,000 kilometres for business use and the partnership didn't keep a log book for the car. Stock on hand at the start of the year was $3,000 and at year end $3,400.
Anne will receive 75% and Ellen 25% of the net partnership income.
What is Anne's assessable income?

A) $48,400
B) $24,200
C) $37,260
D) $12,440

Question 6

Which one of the following beneficiaries is not under a legal disability?

A) Jake who is an undischarged bankrupt.
B) Blake who is mentally disabled and needs permanent care.
C) Drake who is a 35-year-old engineer.
D) Zake who is aged 16 and is a high school student.

Question 7

The Jones Family Trust (an inter-vivos discretionary trust) incurred a $12,000 loss in the 2019/20 tax year. During the 2019/20 tax year the only income derived by the trust was a dividend of $10,000 received from XZY Ltd franked to 60%. The trustee wishes to distribute any available net trust income to the sole beneficiary: Frank Jones, aged 46.
Which of the following distributions could be made to Frank Jones?

A) Net trust income of $571 and an imputation credit of $2,571
B) Net trust income of $2,571 and an imputation credit of $2,571
C) Net trust income of $0 and an imputation credit of $2,571
D) Net trust income of $2,571 and an imputation credit of $4,287

Question 8

Which of the following statements about the taxation of trusts are correct?
1 - Income received from a deceased estate by a minor is classified as 'excepted trust income' and will not be subject to Div 6AA ITAA36.
2 - A trust cannot distribute a loss to beneficiaries to offset against their current income, but subject to certain tests, losses can be carried forward and offset against future trust income.
3 - During the period of administration of a deceased estate, no beneficiary is presently entitled to the income of the trust, but rather the trustee is assessed under s 99 ITAA36 for up to three years.

A) Statement 1 only
B) Statements 1 and 3 only
C) Statements 2 and 3 only
D) Statements 1, 2 and 3

Question 9

Nita Kats (20 years old, university student), Rita Kats (15 years old, high school student) and Tita Kats (30 years old, mentally incapable) are beneficiaries in the Kats' Discretionary Trust.
The trust deed states that Nita will only start to receive her benefits after she graduates from university.
On 30 June 2020, each of the beneficiaries is entitled to receive an amount of $5,000 as their trust benefit.
Which one of the following statements is correct?

A) The trustee may decide to pay Rita Kats' school fees instead of paying her trust benefit in cash.
B) Nita Kats is presently entitled and must be assessed under s 97 ITAA36.
C) As Rita Kats is not presently entitled, her benefit will be personally assessable to the trustee under s 99A or s 99 ITAA36, under the Commissioner's discretion.
D) Rita Kats is able to personally discharge the trustee of their obligation to pay her trust benefit.

Question 10

Paul Simmons carries on a sports retail business selling mostly sporting goods and accessories. Paul paid $47,000 for each of his employees Raquel (21 years old) and Tony (42 years old) into a complying superannuation fund on 10 June 2020.
What tax deduction can Paul claim for the contributions made on behalf of his employees for the year ended 30 June 2020?

A) $150,000
B) $94,000
C) $100,000
D) $47,000

Question 11

On 1 June 2020 Kerstin Wells received two superannuation lump sum benefits from two different superannuation plans. The first, for $90,000, is made up of a tax- free component of $40,000 and a taxable component of $50,000 paid from an element taxed in the fund. Kerstin's second benefit is for $50,000 made up of a $20,000 tax free component and a $30,000 taxable component paid from an element taxed in the fund. Kerstin was born on 1 November 1962.
Based on the above information what amount will Kerstin include as assessable income in 2019-20 tax year?

A) $30,000
B) Nil
C) $80,000
D) $50,000

Question 12

ABC Pty Ltd and DEF Pty Ltd have agreed to join together and develop a gold mine. Both companies have contributed different equipment and have agreed that each company will keep 50% of the gold extracted from the gold mine. Each company will pay its own expenses and will each sell the gold extracted separately. For tax purposes this arrangement is more likely to be:

A) Partnership
B) Joint venture
C) Incorporated association
D) Mutual society

Question 13

Which of the following statements is true?

A) The taxable income of a non-complying fund is taxed at 47%
B) The taxable income of a non-complying fund is taxed at 15%
C) The taxable income of a complying fund is taxed at 47%
D) The taxable income of a complying fund is taxed at 30%

Question 14

For the year ended 30 June 2020 the LKJ Self-Managed Superannuation Fund received $40?000deductible concessional contributions were received (for four eligible members) and fully franked dividends of7?000received. The fund also sold 100 shares in Woolworths for $35 a share. These shares had been purchased by the Fund in 2004 for $5 a share. One member contributed20?000non-concessional contributions to the Fund. The Fund also paid $1 500 in accounting fees and $700 in auditing fees. What will be the taxable income of this Fund for the year ended 30 June 2020?

A) $52 000
B) $50 800
C) $49 800
D) $47 800

Question 15

William is 53 years old and so has not as yet met his preservation age and he decides to receive an income stream from his superannuation fund of $30,000 (assume a marginal tax rate of 32.5% and a Medicare levy rate of 2%). What rate of tax (plus Medicare levy) would William pay on this income stream for the year ended 30 June 2020?

A) 47%
B) 34.5%
C) 15%
D) 0%

Question 16

Domenic is 62 years old and he receives an income stream from his superannuation fund of $50,000 per year. The income stream is paid from a taxed element in the fund. What rate of tax (plus Medicare levy) would Domenic pay on this income stream for the year ended 30 June 2020?

A) 0%
B) 34.5%
C) 21%
D) 17.5%

Question 17

Edward is 58 years old and he receives a lump sum from his superannuation fund of $180,000. If Edward has not previously used any of his low rate cap amount and if the lump sum payment is paid from a taxed element in the fund, what rate of tax (plus Medicare levy) would Edward pay on this lump sum for the year ended 30 June 2020?

A) 15%
B) 0% on the whole payment as he is under 60
C) 0% on the first $210,000 and so 0%.
D) 47% on the whole payment as he is under 60.

Question 18

Mining Co A and Mining Co B have agreed to extract the copper out of a copper mine together and for the year ended 30 June 2020 the joint operation extracted 10 million kilograms of copper out of the copper mine. The two mining companies do not share expenses. Mining Co A sold its share (5 million kilograms) of the copper extracted for $6.95 per kilogram and Mining Co A made a profit of $15 million. Is Mining Co B entitled to share in any of this profit?

A) No as the arrangement is a joint venture and so the parties do not share profits
B) No, as the arrangement is a partnership and so the parties do not share profits
C) Yes, as the arrangement is a joint venture and so the parties are entitled to share profits
D) Yes, as the arrangement is a partnership and so the parties are entitled to share profits

Question 19

The Ryan Family Trust (an inter-vivos discretionary trust) had net income of $20,000 in the 2019/20 tax year. The trustee wishes to distribute $10,000 of this net trust income to James, aged 23, who is a resident of Australia and the remaining $10,000 to Abdul, aged 22, who is a non-resident of Australia.
Which of the following statements is true in respect to the planned distributions of trust net income?

A) The trustee will pay tax on the trust distribution to James at ordinary marginal rates
B) James will pay tax on the trust distribution made to him at ordinary marginal rates
C) Abdul will pay tax on the trust distribution made to him at non-resident tax rates
D) The trustee will pay tax on the trust distribution made to Abdul at resident tax rates.

Question 20

Which of the following statements is not true about a Self-Managed Superannuation Fund?

A) They are limited to a maximum of six members
B) each trustee of these funds must be a member or, if a company is the trustee, all of the directors of that company must be members of the fund
C) payments to the trustees of the fund are prohibited
D) These funds can be set up as single member funds.

Question 21

For the year ended 30 June 2020 the MKY Self-Managed Superannuation Fund (a complying superannuation fund) received $50?000deductible concessional contributions (for two eligible members) and fully franked dividends of14?000received. One member contributed30?000non-concessional contributions to the Fund. The Fund also paid $1 000 in accounting fees and $800 in auditing fees. What will be the tax liability of this Fund for the year ended 30 June 2020 (ignore any SMSF Supervisory levy)?

Question 22

A trust (inter vivos) derives $25,000 interest income and $7,000 in a fully franked dividend during the income year 2019/20. What would be the tax result if the trust net income was sought to be distributed according to the following distribution: (a) $18,000, including the franked distribution, to Brian, who is aged 56 and a resident and has no other income, with (b) the remaining amount distributed to Ted, a non-resident.

Question 23

Anton is 59 years old and he receives a lump sum from his superannuation fund of $240,000. If Anton has not previously used any of his low rate cap amount and if the lump sum payment is paid from a taxed element in the fund, what rate of tax (plus Medicare levy) would Anton pay on this lump sum for the year ended 30 June 2020?

Question 24

Tammy Martin and Ben Krever are in a partnership carrying on trading activities.
The partnership net income is $60,000 after Tammy's $20,000 salary is deducted and after $10,000 has been deducted for purchases of trading stock. The opening and closing stock balances are the same. What is Tammy's assessable income from the partnership?

Question 25

Roger is aged 52 and he has contributed $25,000 in concessional contributions and $120,000 in non-concessional contributions to his superannuation fund during the year ended 30 June 2020. Advise Roger on the tax consequences of these superannuation contributions?